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Vision Corporation acquired 75 percent of the stock of Meta Company on January 1, 2007, for...

Vision Corporation acquired 75 percent of the stock of Meta Company on January 1, 2007, for $225,000. At that date, the fair value of the noncontrolling interest was $75,000.

On January 1, 2009, Vision sold 1,500 shares of Meta's $10 par value shares for $60,000 in cash. Meta's balance sheet at the time of the sale contained the following amounts:

Cash $40,000

Accounts Receivable $40,000

Inventory $20,000

Buildings and Equipment (net) $300,000

Total Assets $400,000

Accounts Payable 50,000

Bonds Payable 50,000

Common Stock 100,000

Retained Earnings 200,000

Total Liabilities & Equity $400,000

During the year of 2009 Meta reported net income of $30,000 and paid dividends of $10,000 Vision used the fully adjusted equity method in accounting for its ownership of Meta Company

1)Compute the balance of the investment account reported by Vision on 1/1/09 before the sale.

2)Prepare the entry recorded by Vision to record the sale of the shares assuming excess of the sale price over the carrying value is recorded as an increase in Paid in Capital

3) Prepare the and eliminating entries for 12/31/09

I have seen this question answered numerous time with no explanation. I would like to understand how to get the answer myself. Question 2 has been answered differently on other posts. So I would like clarification if possible.

Solutions

Expert Solution

1)Compute the balance of the investment account reported by Vision on 1/1/09 before the sale.

$ 255,000

2)Prepare the entry recorded by Vision to record the sale of the shares assuming excess of the sale price over the carrying value is recorded as an increase in Paid in Capital

Debit Cash A/c $60000

Credit Investment in Meta Stock A/c $ 51000

Credit Additional Paid-in Capital $ 9000

How to get $ 51000 explained here:

Date Particulars Total cost
Jan1,2007 Acquisition cost 225000
Dec31,2007 Add: 75% net income in META 22500
(30000*0.75)
Dec31,2007 Less: 75% dividends received -7500
(10000*0.75)
Dec31,2007 Closing balance 2007 240000
Dec31,2008 Add: 75% net income in META 22500
(30000*0.75)
Dec31,2008 Less: 75% dividends received -7500
(10000*0.75)
Dec31,2008 Closing balance 2007 255000
Total shares 7500
Per share value 34
(255000/7500)
1500 Shares value 51000
(1500*34)

.

3. Entry would be

Assets A/c $ 216,000

Investment in Meta A/c $ 204,000

Non Controlling Interest A/c $ 12,000

**Since shares reduced from 7500 to 6000, NCI also increased to 4000/10000 = 40%. NCI increased to 40% of $ 30000 = $ 12000

*** Since after disposal only 6000 shares are left, there value would be 6000 x 34 = $ 204,000

ekkarill92 answered 1 year ago
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